MTN and Telkom in rumoured merger

The Sunday Times reported that MTN South Africa and Telkom have held discussions regarding a possible merger.

A merger between the companies makes sense operationally, as it will create a telecoms powerhouse in South Africa with tremendous scale.

It will combine MTN’s strength in the mobile market and Telkom’s dominance in the fixed-line and fibre arena.

This scale will provide the companies with a competitive advantage in South Africa in both the fixed and mobile markets.

This, however, is the reason why such a merger will not be approved by the Competition Commission – unless strong political forces drive it.

MTN–Telkom plan not new
The plan to merge MTN SA and Telkom is not new. In 2015, MTN considered an acquisition of a majority stake in Telkom to challenge Vodacom’s dominance in South Africa.

At the time MTN reportedly held exploratory discussions about a possible offer for Telkom.

These discussions followed a planned network-sharing agreement between Telkom and MTN SA in 2014.

The plan was for MTN to take over financial and operational responsibility for the rollout and operation of Telkom’s radio access network.

MTN said at the time it does not expect the deal to require regulatory approval, but it expects resistance from industry participants.

MTN was wrong. In 2015, the Competition Commission recommended that the Competition Tribunal not approve a bilateral roaming agreement between MTN and Telkom.

The Commission said the transaction would impact the structure of the mobile market in South Africa, and would “prevent or lessen” competition.

Bigger deal will be more difficult
If the Competition Commission would not approve bilateral roaming and outsourcing of the operation of Telkom’s radio access network to MTN SA, a bigger deal will nearly certainly be rejected.

However, if there is enough political will to make such a deal happen, approval may be easier to get.

The South African government is a controlling stakeholder in Telkom, and President Cyril Ramaphosa was MTN’s chairman for over a decade – from 2002 to 2013.

If such a move can help the two companies to become more profitable and avoid further job cuts at Telkom, it may receive a favourable reception among political decision makers.

MTN comments on discussions
MTN South Africa’s executive for corporate affairs Jacqui O’Sullivan told MyBroadband that they remain in talks with Telkom regarding its roaming agreement.

“Reports regarding further discussions between the two operators are conjecture and MTN chooses not to comment on market speculation,” she said.

Telkom was asked for feedback regarding the discussions, but the company did not respond to questions.